High conviction rate

SAN FRANCISCO (MarketWatch) -- Mutual-fund manager Tim Parton has been largely able to avoid the brunt of the damaged financial and consumer sectors. Now he's centered on protecting his shareholders from the rest of the market.

"There are whole swaths of the market right now where it's difficult to have high conviction," said Parton, who co-manages JPMorgan Growth Advantage Fund
VHIAX, +0.56%
with Christopher Jones. "We've really focused on high quality, predictable companies with repeat revenue to anchor the portfolio. They tend to be the most bullet-proof business models."

Parton runs a multicap portfolio of about 85 stocks that so far has weathered the market's recent storms quite well. The fund's Class A shares gained 10.3% over the 12 months through May 16 compared with a 2.7% rise for its category peers, according to fund-tracker Lipper Inc. Its three-year annualized 16% gain also outpaces its rivals' 11.7% average return.

"We've been trying to focus on higher-conviction names and kick out things that have issues or question marks," Parton noted. "In such an unforgiving market, there's no point in trying to fight too hard when something is in the penalty box."

MasterCard

One company that earns the fund manager's confidence is MasterCard Inc.
MA, -0.56%
the credit-card giant.

Consumer spending has been weak but MasterCard has several trends working in its favor, he noted.

First is its global brand -- more than half of its business is outside of the U.S., where consumer health is stronger, Parton said. Second, using plastic over cash for purchases is increasingly common. Third, MasterCard takes a fee based on the value of every transaction, and the bill for many goods and services that people use a credit card for -- gasoline, fast food, even taxis -- is going up.

"There are nice, long, underlying growth drivers to the business," he said. "There's reasonably assured top-line revenue growth and a very leverageable business model with relatively fixed costs, so margins will go up gradually over time."

Shares of MasterCard closed Monday at $280, down $3.40.

Illumina

Illumina Inc.
ILMN, -0.33%
is one of the "purer high-growth companies" on Parton's screen nowadays. The company, a newer portfolio addition, is on the cutting edge of a growing field -- developing tools and systems used in genetic studies and testing.

"The trend to using genetic analysis and research is still very early," Parton said. "This kind of equipment is being bought everywhere -- universities, biotech companies" and other facilities.

The stock is not cheap, he notes, but its price reflects the 40% to 50% growth rate Parton expects. "They've definitely exceeded expectations," he said. "You have such strong dominance and intellectual property and high growth; these sorts of companies can often hold very high multiples."

In trading Monday, shares of Illumina added 76 cents to $79.04.

Southwestern Energy

The demand for more electricity and power in the U.S. is well-known. How to supply it is less apparent. Many strategists are pinning hopes for meeting demand on nuclear energy or coal, but those large-scale projects are years from completion, Parton said. Short-term, he added, the answer to the country's energy needs is natural gas.

"There are few alternatives to natural gas," Parton said. "That is going to support natural gas prices very well. What you've seen and will continue to see is a premium valuation put on companies that have long-lived natural-gas assets that have some certainty to it."

That is, companies such as Southwestern Energy
SWN, -3.47%
one of the fund's top holdings.

Parton's case for Southwestern Energy hinges in large part on its stake in a natural-gas gold mine called the Fayetteville Shale. The company has a major portion of the acreage in this Arkansas land, which Parton said creates a steady, recurring and profitable business.

"Now we're into the sweet spot," he said. "They've explored most areas of the Shale, and can focus their efforts and energy."

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